Moneys "Common Destiny" on the Wrong Side of Gold

With Euro-rates stuck near zero, which currency will be next on the right-hand
side of XAU...?

FOR THE FIRST five years of its life, the European single currency
was as good as gold, at least as far as the gold market was concerned.

Gold priced in Euros moved barely 10% away from its average price between
Jan. 2000 and Jan. 2005, even as Dollar-gold prices rose by more than one-half.
And in this, the Euro more than equaled its predecessor, the Deutsche Mark.

During the last 10 years of the DM, the daily Gold Fix in Frankfurt had moved
20% either side of its average. US Dollar prices moved in a 50% range.

Since the middle of the last decade, however, the Euro's gold-tracking stability
has deserted it. Gold's pre-Euro peak against the Deutsche Mark is also a distant
memory.

As the chart above shows - calculating the equivalent DM price from Dresdner
Bank's Euro Fix at the irrevocable exchange rate - gold has now beaten the
spike of Jan. 1980 by some 16.8%.

Change in Euro gold price, Jan. '05 to date: +168%

Change in USD gold price, same period: +165%

The outlook? The finance industry's previous trick of creating synthetic XAU/USD
positions for Euro investors has suddenly flipped over in 2010, with banks
now advising and creating synthetic XAU/EUR positions for Dollar-investors
instead.

Change in Euro gold, 2010-to-date: +13.5%

Change in Dollar gold, same period: +5.3%

Yes, those Eurozone funds sold on replicating gold's Dollar-price moves have
missed out on the metal's much simpler (and cheaper) currency-hedge gains.
But by keeping its rates stuck at 1.0%, the European Central Bank is inviting
speculators to fund the new long-gold/short-Euro bet at very low cost, if not
quite as cheaply as short Dollars, Yen or Sterling.

"We all share a destiny in common," said ECB president Jean-Claude Trichet
at Thursday's press conference. But that common destiny was supposed to be
the Deutsche Mark's famous stability, rather than Club-Med-style currency attack.

And in a world of near-zero rates everywhere, the real question is which major
currency will be next to sit on the right-hand side of XAU - the wrong side
of gold - in bank-analyst tips.

Formerly City correspondent for The Daily Reckoning in London and head of
editorial at the UK's leading financial advisory for private investors, Adrian
Ash is the head of research at BullionVault,
where you can buy gold
today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

About BullionVault

BullionVault is the
secure, low-cost gold and silver exchange for private investors. It enables
you to buy and sell professional-grade bullion at live prices online, storing
your physical property in market-accredited, non-bank vaults in London, New
York and Zurich.

By February 2011, less than six years after launch, more than 21,000 people
from 97 countries used BullionVault,
owning well over 21 tonnes of physical gold (US$940m) and 140 tonnes of physical
silver (US$129m) as their outright property. There is no minimum investment
and users can deal as little as one gram at a time. Each user's unique holding
is proven, each day, by the public reconciliation of client property with formal
bullion-market bar lists.

BullionVault is a
full member of professional trade body the London Bullion Market Association
(LBMA). Its innovative online platform was recognized in 2009 by the UK's prestigious
Queen's Awards for Enterprise. In June 2010, the gold industry's key market-development
body the World Gold Council (www.gold.org)
joined with the internet and technology fund Augmentum Capital, which is backed
by the London listed Rothschild Investment Trust (RIT Capital Partners), in
making an $18.8 million (£12.5m) investment in the business.

Please Note: This article is to inform your thinking, not lead it.
Only you can decide the best place for your money, and any decision you make
will put your money at risk. Information or data included here may have already
been overtaken by events - and must be verified elsewhere - should you choose
to act on it.